Introduction
The U.S. Non-Manufacturing Index (NMI), published monthly by the Institute for Supply Management (ISM), serves as a crucial economic indicator measuring activity levels in the service sector. As the service industry constitutes the majority of U.S. economic output, the NMI provides valuable insights into overall economic health for economists, investors, and policymakers.
Definition and Scope
Service Sector Composition
The non-manufacturing sector encompasses all economic activities outside manufacturing, including:
- Retail and wholesale trade
- Financial services
- Healthcare
- Education
- Information technology
- Real estate
- Transportation
- Hospitality
- Utilities
- Professional services
Index Methodology
The NMI derives from surveys of approximately 400 purchasing managers across these industries, tracking:
- Business activity (30% weight)
- New orders (30% weight)
- Employment (20% weight)
- Supplier deliveries (20% weight, inversely calculated)
Readings above 50 indicate expansion, while below 50 signal contraction.
Historical Context
ISM introduced the NMI in 2008 to complement its long-standing Manufacturing PMI (established 1931), reflecting the growing dominance of services in the U.S. economy. The index methodology has evolved to better capture modern service sector dynamics.
Economic Significance
As a leading indicator, the NMI influences:
- Business cycle analysis
- Monetary policy decisions
- Investment strategies
- Employment forecasts
Key Influencing Factors
Multiple variables affect NMI movements:
- Consumer confidence levels
- Interest rate environment
- Government fiscal policies
- Global economic conditions
- Technological advancements
Sector-Specific Impacts
NMI fluctuations differentially affect service industries:
- Retail: Sensitive to consumer spending patterns
- Finance: Reacts to interest rate changes
- Healthcare: Demonstrates relative stability
- Technology: Driven by innovation cycles
- Real Estate: Influenced by inventory levels
Analytical Limitations
While valuable, the NMI has constraints:
- Sample size limitations
- Subjective survey responses
- Reporting lag
- Seasonal variations
Analysts recommend combining NMI data with other economic indicators for comprehensive assessment.
November 2023 Case Analysis
The November 2023 NMI reading of 52 (down from October's 52.9) revealed mixed signals:
- Business activity rose to 56.2
- New orders increased to 53.0
- Employment fell sharply to 48.9
- Prices jumped to 62.5
ISM Committee Chair Tony Nieves highlighted employment weakness as particularly concerning, suggesting structural labor market issues despite overall expansion.
Future Outlook
As service sector dominance grows, the NMI will likely undergo methodological refinements to maintain relevance. Continued monitoring of employment trends and price pressures remains essential for accurate economic forecasting.